#FA Success Ep 320: Navigating Hyper-Growth To Achieve Platform Scale For Independent Advisors, With Jim Dickson

Editor's note: At the time of this podcast recording, Jim Dickson held the position of CEO for Sanctuary Wealth. Since then, Adam Malamed has been named as CEO for Sanctuary Wealth.

Resources Featured In This Episode:

• Jim Dickson
• Sanctuary Wealth
• Domo
• Wealthbox
• Orion Advisor Services
• Mindy and Louis Diamond (Diamond Consultants)
• Adhesion Wealth
• Evans May Wealth
• FiComm Partners
• Vince Fertitta
• Live Oak Bank
• Oak Street Funding
• David DeVoe (DeVoe & Company)
• Cooke Financial Group

Looking for sample client service calendars, marketing plans, and more? Check out our FAS resource page!

Full Transcript:

Michael: Welcome, Jim Dickson to the "Financial Advisor Success Podcast."

Jim: Michael, it's good to be here. Thanks for having me.

Michael: Oh, my pleasure. I really appreciate you joining us today and I'm really looking forward to the conversation of talking about advisor platforms and what it means to really grow an advisor platform quickly. I feel like there's been this sort of emerging phenomenon over the past 10 years of just a new wave of advisor platforms, advisor networks. I feel like it's kind of the natural extension of, first, we had the mega national firms, right? The wirehouses and the like. Then we kind of birthed the independent broker-dealer channel, and some advisors started shifting from employee models to independent models.

But even if you're independent, most of us don't really, really want to literally go at it entirely alone, we still tend to have some sort of platform that provides some compliance, tech infrastructure, and other services. So, we went from employee models at wirehouses to independent broker-dealers as platforms that then grew very, very big. Then we started morphing into the RIA world and for the past 10 years has really been the story of the growth of the RIA platform that is similar in many ways to independent broker-dealers and national platforms, but a little different for the independence model and what's offered and just what you can do when you don't have FINRA in there because you're not focused on the product distribution side.

But one of the interesting things to me about this shift in the waves of platforms is just because the advisor space continues to grow and thrive, I feel like every time we go through another wave of platforms, the new wave of platforms grows even faster. It took 30-plus years for independent broker-dealers to become big, but a lot of independent RIA platforms are getting there in 10 years. And just when you take 30 years of growth and you cram it into 10 years, it makes for a certain level of crazy.

Jim: Yes.

Michael: It's neat to say, "Hey, we had this fast-growing business and we added billions of dollars and dozens or hundreds of staff." But for anyone that's ever really been through the process of that kind of hiring and scaling up, there's a special sort of crazy that happens behind the scenes in just what that really looks like and how to hold it together. And so, I know you've done a version of that journey. And so, while I want to talk a little bit about just literally the platform that you built and how you're operating in that RIA platform space, I'm also looking for just talking a little bit about what it's really like when an organization grows by billions or tens of billions of dollars in 5 to 10 years and just what that actually looks like behind the scenes.

Jim: Yeah, it's crazy, right? And I laugh sometimes because I call it, we live in the Instagram world, so, everybody sees all the posts on Instagram, or in our world, LinkedIn, and they see how everything is great, but they don't realize the scrapes and bruises and blood that it takes to get there, and that really is the norm and Sanctuary is no different. Look, yes, we're approaching $25 billion in AUM in 4 and a half, 5 years, but we had to build it, right? And as we build it, we got a lot of things right, we got a lot of things wrong. And the key, I think, as you sort of work through that is really to just have that client mindset of, "What are we trying to do here?"

And for us, we're sort of guided, Michael, by this principle of building the ultimate client experience. We feel like if we can get that right for our advisors, our partner firms, that they're going to be happier and they're going to grow faster. And those are the sort of 2 things that we do that. But I think one of the hardest things being an entrepreneur is you get so passionate around a process or a procedure or a project that you're working on, and then it doesn't work, right? It's a real dud.

And having the ability to objectively or having the team like I do to step back and say, "You know what? It's not working, we need to pivot," I think it's one of the hardest things that many entrepreneurs have to do in order to be able to really grow and see that you have to sort of fall in love with the outcome, not fall in love with, "Hey, this was my decision or this was my plan." And so, for Sanctuary, I look at it, I'm incredibly proud of it, and I'm incredibly proud of my teammates, but it doesn't look anything like the plan that we started with. It's sort of molded and evolved based on the feedback of our clients and our partners to where we are today. But it's been a crazy journey of a lot of ups and downs, not just what you see of the outcome.

How Sanctuary Wealth Creates ‘Partnered Independence’ For Advisors [08:26]

Michael: So, I really want to talk more about that whole juxtaposition, "It doesn't look anything like we thought it would be when we started." So, I want to get back to that in a moment. But first, just help us understand what it is as it exists today. I know you guys have gotten a good amount of industry press about building an advisor platform and the teams that have joined the firm, but I suspect that a lot of people may have heard the name, but not really know the details of the business. So, just help us understand Sanctuary as a business. What is the actual platform, and what do you do?

Jim: Yeah, so we are a firm of about 80 partner firms in 29 states throughout the United States that serve the high-net-worth market. We sort of specialize in that $2-20M high net-worth space that our partner firms serve their client. And what Sanctuary is, is the platform that they plug into to be part of that provides sort of the front, back, and middle office. But I think more importantly, it provides the community, right? It was our belief that where advisors are really good, Michael, is really spending time with their clients. And if we can build a platform that could allow them to plug into all the best in class, open architecture capabilities, to really serve their clients and grow their practice, that we could be a good partner.

And I think that that has been sort of the secret sauce of Sanctuary is bringing together all these like-minded individuals and truly building a network and culture of people that like and trust and care about each other, that really want to help each other grow and share best practices. I spent 25 years in the wirehouse environment. And in that environment, it was interesting, you'd have a meeting and because maybe you and the person in the office next to you were pursuing the same prospective client, nobody really shared ideas. Well, at Sanctuary, we're spread out over 80 teams over 29 states.

And so, the real culture is helping each other and sharing best practices around digital marketing or around how you're positioning alternative investments, or whatever it may be. That's really what Sanctuary is about. It's about the culture and community with a very high standard and a barrier of entry of who we let into the family because I think it really matters. And I think what's got a lot of businesses that haven't succeeded is they didn't have that discipline and they sort of just let anybody in. So, we're really picky. You've got to be fee-based, you've got to lead with financial planning, you've got to be somebody that we like and trust and want to be a partner for us, and I think that high standard has really allowed the community to thrive.

Michael: So, out of curiosity, just when you talk about community and the community supports and shares, just how does that actually literally work? Because you're not all in 1 local office, people aren't walking down the hall... are you a big forum, like message forums system? Do you have some kind of way you bring people together virtually with open coffee chats? How does community actually show up in practice? What does it mean for an advisor to be part of and involved in the Sanctuary community?

Jim: So, I think it's like the old answer of the question I didn't know in my high school algebra test, "D, all of the above," right? Because everybody's different. But what I think is important is, is that we've built... and we talked about growing pains earlier and this has probably been one of our biggest growing pains. We build a workstation that could really be the host of all things going on within Sanctuary, right? And so, we call it Haven and Haven really connects a lot of people, it connects a lot of training, it connects a lot of best practice. But we sort of...at the time, I remember doing it, Michael, it was funny. We launched Sanctuary in 2018 and not too long after that, COVID hit in a really big way.

And at the time, I'm like, "Oh, my gosh, could I have had any worse timing?" And I sort of woed myself a little bit. And in many ways, I think one of the reasons Sanctuary has been so successful is we did build it during COVID. Because we did everything digitally and we did everything via Zoom and we did everything via video, and now, video training and video is such a big part that it sort of connects everybody. And then, with our architecture and our sort of relationships, we bring people together for national meetings and regional meetings and say, "Hey, I saw you on a video, can you tell me a little bit more about your business development process?"

And they build these friendships and these business relationships that are really deep. And I think that's what makes it work. So, you've got to have the infrastructure to bring it together so they can be exposed to each other and the best practices and what's happening, but it's the personal relationships and the ability to share and the willingness to share, sort of thought leadership groups, it really makes a difference. And so, a lot of what we do at Sanctuary is peer-to-peer and our partners love it.

Michael: So, I'm still trying to understand, how do the peer pairings happen? How are they finding each other or getting connected?

Jim: Well, I'll give you an example and there are lots of different ways that it happens. But one of the things we did in 2022 is we had a lot of advisors, probably about 20, that were very interested in sub-acquisitions, right? Doing M&A within their practices. And so, we brought them into a study group, and I facilitated it, along with our head of growth. We facilitated that but we brought in a lot of external resources, we brought in a lot of speakers, and we sort of trained our partner firms on all things M&A. And many of our advisors come from a wirehouse so they'd never had the ability to do that, or they'd been in a small RIA that wanted to plug into our platform. And so, they were very curious about it. But we brought that group together, and then the first couple of meetings, everybody was learning, but every time we would have dinners and by the end, we're doing a lot of deals, we're sharing best practices.

But more importantly, that group of 20, 25 advisors that we brought together, they're the best of friends, they're calling each other, they're talking about prospective deals, they're talking about different things. And so, if you put people together who are good people, who are really growth-minded, they will connect and they will take it far greater than you ever could have taken it. I feel like our job at a place like Sanctuary is to A) have high standards and bring the right people in, but B) it's to be the symphony orchestra conductor, right? It's to bring people that are world-class together, and then in many ways, get out of the way and let them connect and do their thing. But when you put them all together, it's pretty magical music.

Michael: So, you've talked quite a bit about partner firms. So, what exactly is a partner firm? What does it mean to be a partner firm?

Jim: Yeah, so those are businesses, right? So, we've got approximately 80 businesses that partner with Sanctuary. Some of those we have a stake in, some of those we don't have a stake in, but those are the businesses we serve. We view them as our clients. They use the platform, they use our solutions, they sit on our ADV, and all those things are really a long way of just saying they're our clients, they're our customers. And so, we call it partnered independence because we own a stake in a fair amount of those and we think that really makes sense because it aligns our interest, right? We're not out there trying to just upcharge them or make money off of them, we truly own part of that practice, and so we are partners. And that's worked really, really well for us, probably will never be 100% of what we do but when we talk about our partners, that's what we're talking about. We're talking about the 80 businesses. Some of those businesses are teams of 5 or 10 people and some of those businesses are 1 advisor and his or her assistant. But those are the 80 practices that we serve today.

Michael: So, I think you said they do sit on your ADV, so structurally, you are one master corporate RIA and they become IARs under your corporate RIA? Or are they...?

Jim: Yeah, that's right. They own their own firms. So, to be really clear about that, they own their own firms, right? So, they own the LLC. But there are IARs that sit on our ADV. And so, we're a large corporate RIA, that gives us a lot of scale, it gives us a lot of pricing, and we pass that along through our partners so that they're more profitable. But as it relates to the business, they each own that themselves. Now, we may own a small stake of 15% or 20% or 30% of those practices, but that's how we're set up.

Michael: But I’m just, I'm sorry, I'm intrigued on this, just to nerd out for a moment on just the literal corporate structures. So, you're your own entity, they own their own LLC that's separate from you, but they're also still IRAs on your corporate RIA. So, just how does that work with the separate entities? Because technically, their LLC as an entity is an IAR on your corporate RIA or the people are an IAR on your corporate RIA?

Jim: The people are the IAR but then the compensation flows through to that entity that they've set up, an LLC usually. So, the LLC is where the compensation expense lies, but the individual IARs sit on our ADV.

Michael: Interesting. Okay. And then where do advisory agreements and contracts with clients...?

Jim: Those are all at the Sanctuary level. We've got a series of agreements and contracts. Now, that can differentiate a little bit. So, anything that's the regulatory perspective like an investment advisory agreement, per se, that's going to go through Sanctuary. But because they own their own LLCs, the hiring of the people, the cleaning service, those kinds of things run through their LLC. So, it's a pretty interesting combination that we built. But when you think about it from the regulatory perspective, all of that is going to be at the Sanctuary level because we are the RIA and it's our ADV that they all sit on.

Michael: Interesting, but I guess functionally, the regulatory and the registrations flow through Sanctuary and I guess you've got the compliance obligation that goes along with the Sanctuary level...

Jim: Yes, 100%. And that's a big deal, right? Many of our firms are coming from a wirehouse, they don't want to own all that compliance, they don't know how to own that compliance. And so, we do that for them, we take care of that, they don't have to deal with a regulatory audit, they're not dealing with...the audits they're dealing with are going to be our internal audits when our compliance team shows up to go through that. So, for a lot of advisors, they really prefer us handling all of that on their behalf.

Michael: But then when it comes down to "the advisor's business" and literally their P&L, in essence, you're not paying them salaries as IAR employees of the Sanctuary RIA, you're paying their compensation to their LLC, and then...

Jim: 299 income, yeah. So, we paid 299 income.

Michael: 299 income through LLC.

Jim: Yeah, that's exactly right.

Michael: And then they've got their own expenses at their level, and then I'm going to presume some kind of platform fee that that either their LLC pays to Sanctuary or that you subtract before you make...

Jim: Yeah, we do all their reporting, we do all their billing, we help them with all their digital marketing, we do all the documents storage and retention. It's our mantra and our belief that if we can get that advisor to spend time on his or her client and his or her prospects, that's going to be best for them. And so, we try to build everything out. We do give them a ton of autonomy. One of the things that maybe we're different than a lot of people is we don't try to control the investment experience, or we don't try to control the client experience. Now, obviously, we have got an investment committee and we've got investment agreements and we go through approvals, and all that is incredibly important.

But we believe that, really, the financial plan should govern the relationship and that's a very intimate relationship between an advisor and his or her client. And so, we really give them a lot of autonomy to operate as they best see fit as it relates to that. Now, obviously, like anything you would imagine, we've got pretty broad constraints regulatory that they've got to sit between, but with our partner firms, that's never an issue. So, we give them flexibility in how they want to bill, we give them flexibility in how they want to invest. So, it looks and feels like an independent practice but they're not having to do all the things that sort of bogged down many practices day to day, they can sort of outsource that to Sanctuary, and yet participate in this really...I don't know, what I would call it, a community of growth is probably the best term I would say.

Michael: So, what led you to this LLC structure? Because I haven't done any official industry survey on this, but I'm fairly certain just for most advisor platforms that roll up to a corporate RIA, just advisors are paid directly as individuals off the corporate RIA, not with this LLC struture and layer to it. So, what was the purpose or the genesis of the LLC layer and structure?

Jim: Yeah, so when I left Merrill Lynch after a 25-year really great career, I had a non-compete, non-solicit for 12 months. And so, I did this world tour, and I went out and I looked at a lot of different models. All the platforms that were there, some of the aggregators, some of the consolidators, and I felt like that there was an opportunity to build...there was a hole, to be honest. And at that time, if somebody wanted to go independent, they would write a consulting check and then they would pay a consultant to take them independent, and then they would be locked into a 4- or 5-year contract with that firm, and it just didn't seem very advisor-centric.

And so, when I looked at that, I just thought that there was an opportunity to build something that could allow the advisor to scratch their entrepreneurial itch and to deliver an independent client experience, but yet not have to do it all themselves. So, we say it's like being independent but not alone. And so, as we looked at that, we engaged a lot of really good law firms and really good accounting firms and we said, "Okay, what might be the most tax-efficient way to do this and what might be a way that..." Obviously, we do it within the regulatory confines, but we deliver autonomy to our advisors because to me, that's what many that were sitting in a wirehouse were really looking for was they were looking for the ability to have autonomy and not sort of be bound by this lowest common denominator of a compliance platform.

And so, that's what we did and the structure we came up with was this concept of, really, they wanted to be 1099, they wanted to be business owners, they just didn't want to have to build the platform to run the business because as you and I know and many others know, that's really hard and it takes a really long time. And so, instead of building it all themselves, they just plugged into us, but they wanted many of the benefits of owning their own business and of having some of the tax efficiencies and so forth. And so, that's what we created.

How Sanctuary Structures Advisor Partnerships And Compensation [23:26]

Michael: Interesting, interesting. And so, from the platform end then, how do the economics work in practice? Obviously, you've still got expenses to manage yourself. I'm envisioning there are basically sort of 2 layers of P&Ls now. There's like the Sanctuary layer for what you do and what you earn before dollars flow down to the advisors, and then each advisor or partner firm has their own P&L that they're managing through the LLC. But typically, there's 1 check the client pays, right, that goes up to fees out of the account to get allocated out. So, how does this work from a fee-splitting, revenue-splitting platform...this platform costs, and how do you carve this up and who gets what...?

Jim: One of the things that we were religious about was we wanted to keep it simple and it had to be transparent. One of the things that I realized when I was on my kind of knowledge journey going out and meeting was like there was a lot of sort of these markups and these tech charge markups and, "I'm going to get Orion for this but I'm going to mark it up." And so, we made the decision to keep it really simple and be really transparent. We charge a fee to be on our platform, that's a percentage of revenue, and it goes down as the team gets bigger. And that's what they pay us. And then we go out and we negotiate and source their technology stack and we give them choice around different platforms that they want. But they're paying us a simple fee, which is a part of their revenue. We do all the billing, and so we withhold our fee and then send them the rest, it's very transparent billing, but there's not a bunch of markups or markdowns or markarounds, it's just this is what you pay Sanctuary.

Michael: And can you give us a sense of at least the neighborhood of what is this percentage allocation?

Jim: Yeah, it really depends on the size of the team, right? But it can be as low as maybe 10% and as high as maybe 20%. But it's somewhere within that depending on what the team needs and how big they are and how much revenue they are and some of the services that they're providing. And then do we own a part of them or not own a part of them? So, it's not as easy just to say a specific number. But I think somewhere in that 10 to 20[%] range is pretty fair where honestly almost everybody ends up in this platform space, they just do it differently. Some say, "Hey, you're only going to pay a 7[%]," but then when you look at all the charge-ups, you're really paying 14 or 15[%]. And so, we don't want to do that, we just wanted to be like, "Look, this is our fee and how we're going to do it." And everybody knows that when they come in and we make an agreement with them that that's not going to change, this is the fee that we're going to charge you as long as you're part of Sanctuary and there it is.

Michael: Yeah, I know the old informal rule of thumb I had always heard for years and years in the independent broker-dealer world was 8 plus 8.

Jim: Yeah.

Michael: That IBDs, at the end of the day, end up making something in the neighborhood of about 16% of revenue from their advisors, usually much more indirect. So, 8% of it comes off the grid, right? The proverbial 90-something percent, 92% payout, and then the other 8% is tech markups, platform fees, ticket charge markup, wrapper fees to use certain investment account offerings, right? All the other things that layer in and we kind of played the game of, "Well, I'm going to do a little bit less of this because they charged me a lot for that, but I got to give them their pound of flesh on this because I do use that." You mix it all together and some people will be a little higher or lower, but it still comes into a similar neighborhood and then bigger firms get breakpoints and you fluctuate right in that 10% to 20% range.

Jim: You nailed it. Yes, well said, my friend.

Michael: And it's amazing how consistent these really come out to be at the end of the day.

Jim: And so many times, somebody will say to us, "Hey, Sanctuary is more expensive," or whatever and we'll say, "Okay, let's do the analysis," and we'll break it down and it ends up in the same thing. So, I feel like at the end of the day, what you just said has been right for a long time and continues to be right, and the bigger you are, the faster growing you are, then maybe you can get it a little bit better outside of that economics, but it's going to be somewhere in that ballpark range no matter what you do if you participate in a platform.

Michael: And then is there some kind of minimum of... a minimum platform fee, or just like a minimum AUM base that you need to have?

Jim: For us, our market is we serve advisors and advisor teams that do about $1 million in revenue and beyond. That's kind of our sweet spot. We're building a boutique firm and a boutique culture, we don't want to be another wirehouse. So, we sort of are really thoughtful on who fits in our space and how big we want to be in the future. And so, we're very thoughtful around that and we feel like that we serve that sort of $1 million revenue team to about a $15 million dollar revenue team. And then on average, they serve clients that for the most part...I mean, obviously, we've got some really big ones, but sort of that $2-20M space. That's who we serve and the clients they serve.

And so, everything we build is built around that experience and that client profile. And we were talking earlier about sort of lessons learned and it's like one of the things that I don't think I had enough respect for or really knowledge of in the beginning is you have to build your firm based on your client profile. And if you do that, you'll have a lot more expense. But when you start building things just because they sound cool or you heard about them, but they don't really fit your client profile, boy, do you take some wasted steps and goodness knows that I've done that a few times.

Michael: Yeah, that whole phenomenon like, "Oh, this sounds neat, I think it would be cool, we could offer it, a few people would use it." It's like, "Well, yeah, but if a few people use it, you need a whole staff team and an infrastructure and then a manager to oversee them for this project." Or offering that only a few people actually use, and then you got another team with a couple of people and a manager to do this one because someone's got to be accountable and responsible for it. And if you're trying to scale a larger organization and a platform, those additional teams and the management overhead and the organizational complexity can take a toll really quickly when your org chart suddenly starts to get really big and there are a lot of managers managing things that don't actually really generate a lot of revenue.

Jim: You nailed it, and that's probably been the toughest lesson learned for me as a CEO and the founder of the firm and it's like, "Is it scalable?" Right? I think in the beginning, we all make decisions as advisors and as firm owners, "Hey, let's do this deal, let's grow," right? And then you start to string enough deals together and you're like...you realize you're just building yourself a ceiling because if everything's an exception, then you're in trouble. And so, you've really got to think about, "How can I build a scalable practice? How can I build a scalable company?"

And it's like the best way to do that, in my opinion, and sort of… I have some scars to show for this is like to really understand who your client is and listen to...for our case, listen to our advisors who tell us, "Hey, this is what I need, this is what I need to serve my client." Because then you don't have to convince them to use what you've built, right? You built what they told you they need. And so, I think that's something that we've gotten a lot better at over the last 4 or 5 years. And certainly, I would just say to anybody that's listening today to really key in on that client profile because it really does make you more efficient and accelerate your growth.

Michael: So, help us understand just what Sanctuary does at the end of the day? What do I...from the advisor side, I'm like, "Jim, what do I get for my 10% to 20% that I'm paying you guys?" What type of lever that I was going to otherwise have to eat off my P&L anyways as an independent advisor?

Jim: Right, we feel like we do a lot. And we feel like, candidly, we've now got our pricing and our scale down to the fact that it's just as profitable to be on our ADV as a partner on the platform of Sanctuary as it is to your own ADV. And we've used our $25B in scale to push down pricing, right, with Orion as an example, the per-account pricing, the CRM, since all those things we build it. And I think one of the things that people don't really respect unless they've gone through the wars is how hard it is to not make the decision on what technology to use, but how to connect all that technology. And so, I think one of the biggest things we do is we provide a connected ecosystem of all the data flow, right? So, if you want data about your practice, if you want data for your client data, we've got a data lake that provides that.

And so, when an advisor comes to Sanctuary, they get this suite that's already built that they can plug into that allows them to run their business, I think, really intelligently. And on top of that, they get a platform of growth, right? And so, one of the things that I believe passionately in, and I'm really focused on right now, is how do we market ourselves digitally? For many advisors, they weren't very good at it, and for a lot of advisors, they couldn't do it. And so, one of the things that Sanctuary has done is they've really focused on how do we allow you to show up on video and how can you capture your unfair share of this $84 trillion that's going to transition from one generation to the next because we all know that that next generation consumes very differently than the silent generation did and the baby boomers.

And so, those are the things that you can plug into at Sanctuary, that it's not just a platform. And one of the decisions we made in 2021, which I think has paid off huge dividends, we were really frustrated in the TAMP space. And so, we went out and we now have our own TAMP that's powered by Pershing X, but it's our TAMP and we control what sits on it, we control the pricing on it. And that's allowed us to throw a lot of economics back to our advisors and add to their profitability because we're not paying what a lot of people pay. And so, it's this holistic thought of we get up every day and we think about, "Okay, if we were our advisor, what would be important to them?"

And I think it's the ability to have holistic data to run your practice that's all connected and plugged together and plumbed appropriately but you also want to know that the compliance is going to be there. And then on top of that, the icing on the cake is this growth concept and we measure that really, really fanatical. Our partner firms last year organically grew in a pretty tough market environment at about 9%. If you compare that to the 2% that the average firm grows out in our space, that's a real win. And so, it's that growth content with sort of that holistic platform together that I think is the secret sauce of what Sanctuary is and why so many people are attracted to it.

Creating A ‘Data Warehouse’ To Share Advisory Metrics And Benchmarking [34:35]

Michael: So, help me understand a little bit more just what you're doing with data and unifying data. Because almost all of us in the independent space complain about, "We've got all this tech and each one's pretty good and "best in class" in their class with their own data." But it's not fully...it's kind of integrated, but not really fully integrated to everything else that we're also using at the same time. So, help us understand more what you've built in this space.

Jim: Well, I don't know that we built anything other than a data warehouse, right? And so, if you really think about it...gosh, man, I did not know this when I launched this business. Data comes in all kinds of forms and shapes, and you have to clean it up so that it can work together and can be productive. And so, for us, we're a multi-custodial firm, we had all this data coming from all these places, and the data was great but when you tried to mash it all together, there were all these errors and all these exceptions. And so, we hired a wonderful CEO that had worked at United Capital for a long time and then Goldman Sachs, and she's come on and really helped us take a step backward and say, "Yeah, it has to not only be best of class, but it has to be compatible with the rest of part of our tech stack so that it can go into a data warehouse in our particular situation, and then come out via a portal for our clients and for our advisors, and that the data is right, it's easy to use, you can query it, you can search it."

And it's like it sounds easy but it's not, it's not easy at all and we spent a lot of time and money building it. But now, when you look at our desktop, we use business intelligence software that sort of takes all that data called Domo, and really brings it out of our data warehouse onto our desktop so it's easy for advisors to use. And I think that consumability of that data is really hard to find and it's one of the frustrations. We have a lot of firms today, Michael, that are coming to us and say, "Look, I'm independent, I love being independent, but stuff like data and compliance is really taking so much more of our time and I don't have as much time to spend with my clients, can we join your platform?" And then they come onto our platform and they see how easy it is to consume that data and I think it just makes their client experience better and makes the practice better.

Michael: Interesting. And so, do you have like an internal technology team? Is there a technology officer and some other folks that have to figure out how to manage a data warehouse and integrate it to platforms like Domo? Because I don't usually think of that as a classic advisory firm core competency. That’s a new space.

Jim: Well, I think for us, one of the reasons that we build it that way is because so many of our advisors were coming from a wirehouse and that's just what they were used to, right? And so, for us to be able to recruit them and for us to be able to make them have a great experience, they couldn't go backward. And so, the ability to have their data and the ability to do that really made it an easier transition from a wirehouse into the independent space because we tried to give them the freedom and flexibility of independence and the autonomy of independence, but yet, not make it so they had to build it all themselves, right? And make it so that we had...the whole concept of having a workstation, per se, when I went on my journey 4 and a half years ago to sort of think about building this thing, was really foreign.

But so many independent practices that have joined Sanctuary are like, "Oh, my God, we love this, this is exactly what we were looking for, it just makes our life easier." So, we believe that making that investment and building out what we call our platform team is really differentiated. And we don't bring a new vendor onto our platform unless it goes through that group, unless they look at it and say, "Yeah, this is compatible, the API is there," because it's just going to be a bad experience for our partner firms. And the better we've gotten at that, the better our happiness and our surveying work that we do with our partner firms has got. So, we think making life as easy as you can as it relates to data and practice management is really important.

Michael: So, this isn't... I just want to make sure I understand, so this isn't necessarily about integrations, per se, as though like, "We're going to make Redtail talk a little bit better to Orion, talk a little bit better to eMoney." This is more on the business reporting, business intelligence side, just being able to see and understand, "Here's what's going on in your practice, here's how it's situated."

Jim: I think it's all those things. I think it is about making sure those things talk and not adding new vendors that don't integrate well. Our CRM is Wealthbox and Wealthbox works really well with Orion. We've made sure that it works really well with our TAMP, we've made sure that it works really well with the custodians. And sort of like, I think one of the lessons learned in the early years of Sanctuary was instead of taking on 50 projects, let's take on 5 and do them really well and make sure everything's connected. And once it's connected, then we'll add a 6th, then we'll add a 7th, and sort of build out from the center instead of trying to do 50 things at once. But one of the things that I think you had to...you need is you need data to benchmark your practice, to understand what's working and not working, and how you're growing and maybe clients...we start to get into the AI concept.

What things out there could we look at from our data that tells us that clients are raving fans and we should ask them for a referral and what parts of our data might they say they're not very happy and there's a risk they're going to leave, right? It's all of that trying to build into our platform, but then delivering it to our partner firms so they can consume it as they see fit. We're probably in the 5th inning of a 9-inning game, so I don't want to act like we've figured it all out or we've got there. But what we built so far has been very well consumed by our partners and very much appreciated.

Michael: So, I hear kind of technology and your unique version of it, because even if you've got some technology tools out there that other folks can get to, right, Wealthbox and Orion and such, you get a better deal on it for size and collective buying power. And then you've built this layer of integration, a data warehouse, business intelligence that overlays it to make the tech work better. So, I get the tech end. Obviously, you're covering compliance because you have to in this structure, but it's welcomed, because not very many people really want to do their own compliance. So, is that the core of what's there in the offering? Or are there other layers or service capabilities that tie in?

Jim: Yeah, there are. So, we've got a practice management group that we have that's really strong and we've got a training group. And they're really, like I said before, the symphony orchestra instructors, that a lot of our training and a lot of our work is peer-to-peer of just really bringing best-practicing advisors together because that's what we feel that they want. But we really think about this...I feel like at the end of the day, what we feel our advisors want is they want the ability to make the choice, but they want to have the breadth and depth of a platform behind them to help them do it in a more efficient way.

And so, a great example of that is performance reporting, right? We've got a team that sits in Austin, Texas, that really goes through and looks at investments that are brought to them, they'll do that due diligence, and they'll go back to the advisor and say, "Yes, this makes sense," or, "It doesn't make sense." They do a ton of due diligence on all of our funds but a lot of that is customized, right? We have a partner firm that comes in and says, "Hey, I've got this, can you look at that?" And so, I think having that breadth and depth that's just part of your team that you can use at any time as it relates to investment management specialties, as it relates to financial planning, that's really what we built. We also have a family office for the ultra-high-net-worth part of our business that people can run into because what we noticed was, they had a great book of business and they had a bunch of $10 million clients, but maybe they had 1 family that was [$]100 million.

And so, we wanted to build out these core services that that family could still be served through that partner firm, but that partner firm could plug into a group of specialists that that's all they do. And so, all those things, all those satellite businesses, we've got a group that supports insurance for any insurance work, estate planning insurance work that our teams want to do. We've got a whole series of sort of these specialty practices, the same thing around retirement planning, that advisor says, "Look, it's not part of my core competency but it's a growth opportunity, how can I partner to take advantage of this opportunity within Sanctuary's resources and network?" And so, the core is our advisor but we built this entire holistic platform of satellites around them that they can reach into to help them grow or to partner with them. And all of those services, I think, lead to that organic growth rate that we were talking about before.

How Sanctuary Arranges And Funds Partial Ownership Of Its Firms [44:01]

Michael: So, where does then this layer come in that you said for a non-trivial number of your firms, Sanctuary actually owns a stake in them, may own... I think you said 15% to 30% of the business. So, where does buying an ownership come in relative to sort of this baseline of, "You're independent or you're wanting to go independent and become independent, and you've got your LLC and you're controlling your revenue and your P&L and you're just paying us this 10% to 20% to cover the overhead you're going to have to cover anyways but we'll do it better and more efficiently for you?" I get that whole independence framework, but where does the ownership stakes or the transactions come in? Who's selling and why are they selling in the midst of doing this independence transition?

Jim: It's a great question and this part of the conversation will be fun, Michael. So, when you talk about unintended parts of a business plan, right? I think this was an unintended part of the business plan, but it's probably one of our fastest-growing plans. And so, what happened is we raise capital, some people begin to question, "Hey, these people are on your platform, but they could leave, they could do whatever." And you can say to somebody as much as you want that, "Well, they're not going to leave, they love us," right? But they're still going to give you a discount on your valuation if that's the case. And so, we began to have some conversations with our partner firms and said, "Hey, listen, if you're ever interested in taking some chips off the table, let us know and we would love to...we're not interested in having control stake at this point but we'd love to take a minority stake."

And we had great demand from that and a lot of our partner firms said to us...really, a couple of things. Number 1 was, "Hey, we do want to take some chips off the table, we don't want to sell the whole thing but we want to take some chips off the table." And sometimes that was to facilitate an internal transition plan. There were lots of reasons, but they were interested in that. And an awful lot of our partner firms said, "Hey, look, we'd like to do an equity swap, we see what's happening with Sanctuary, you guys are growing, we think you're going to be...so, let's do an equity swap."

So, we did a fair amount of equity swaps. But what the third reason was, and this is probably the most exciting to me was we saw an opportunity to do some acquisitions alongside our partner firms, right? And it just made all the sense in the world to me that we've got these partner firms that are in 29 states, they've got great relationships, they understand their local markets better than anyone else, and if they bring us a deal, an M&A deal that we might want to take a stake in, why wouldn't we do that together? Why wouldn't we do a co-investment?

And so, when we do a co-investment with our partner firms, which we've done 5 or 6 and it's probably one of the fastest growing parts of our business today, we'll take a stake first in that partner firm that we're going to do the deal with, and then together, we'll go take a stake in the firm that we're going to want to buy. And what that's really allowed us to do, Michael, is to develop a sales force that we couldn't have done otherwise, right? Because now we've got people in these 29 states in these markets that know and trust these advisors that we're thinking about buying, they know if they're going to fit in the Sanctuary culture, they know if they're good people, they know if they have a good book of business, they know if they're compliant.

And so, when these partner firms make these introductions and I get on a plane or my partners get on a plane and we go meet them, that the deals... I don't want to say it's already done, but most of the deal is done, we just have to figure out the economics that worked for everybody because they've known and trusted each other and liked each other for years. And so, a lot of our plan going forward is really to use our institutional capital and use our expertise around all things investment banking that we've built within our company, and go out into the marketplace and break people away from the wirehouses. We'll never stop doing that because it's a really good business for us. But then with those people that we brought away, do sub-acquisitions. And when we do those sub-acquisitions, that's when we truly become a partner because we're both invested in these businesses that we're buying.

Michael: And so, I guess, from the pure sort of investor economics and enterprise dynamics for Sanctuary itself, it's one thing to say, "They're partner firms and they love us and they're going to stick with us for a long time," and over time, you get to build your retention track record to prove that out to your investors. But it's a whole other level when you can just go and say like, "No, no, we're literally partners in their firm, we own 30% of the firm." And so, not that that's even necessarily about handcuffing them but just, obviously, they have a different level of buy-in to Sanctuary if they're literally willing to let you buy parts of their firm.

Jim: Yeah, and then every one of our deals, we don't take control. We have some protections in there to protect our investment and we have an agreement if they want to sell that, if they want to sell our stake, that they can do that, right? And those terms are in there. And so, it's been fantastic. It's been in the last 12 months that we've really gotten on to this, and it's a huge part of our growth going forward. And at the same time, we're growing faster, our valuation has gone higher, so from a corporate perspective, I think it's been a huge win-win.

Michael: And then where does the cash come from? How are you financing this for all these deals?

Jim: Yeah, so in July of last year...so kind of funny story that many entrepreneurs will appreciate. I remember going to my wife, the love of my life, and saying, Sweetie, I'm not going to go to work at Morgan Stanley even though I've got this wonderful opportunity." This is when I left Merrill Lynch. "We're going to launch our own firm and take on all this debt, but I promise you, it's going to work out." Right? Many entrepreneurs have had to go through that conversation. And so, for the first couple of years, myself and a firm called the Cooke Financial Group here in Indianapolis, we launched this together and we started the journey together.

They were leaving Wells Fargo, I was leaving Merrill Lynch, and so we started to build this together and they were the founding partner firm. And candidly, for the first 2 years, we cashed out a lot of it ourselves and we had a bank loan and then we've raised a couple of rounds of institutional capital after that. The most recent one was in July of this year, which raised $175 million in convertible debt that can be converted into equity. And so, that's the institutional capital. And the reason we did that, Michael, and it was a real... man, it was a real soul searcher for me because it was the first time that we use private equity or private debt money.

But the reality was I'm kind of a farm kid from Indiana, right? So, $175 million seems like a lot of money. But when you really get into RIA M&A, it's not as much as you think. And so, for us, we needed a partner that we knew if this was successful, which it's been, we could keep growing with and we could keep doing more deals with. And so, what I find today is it's really hard to be competitive at the M&A table in the RIA space if you don't have institutional capital behind you. And so, we made that move this year. It was a pretty Herculean mental leap for us, but it's worked out well and I think we're headed in a really good direction.

Michael: It's interesting when you think about the math to it of just RIA M&A dynamics, where if you want to peg midsize firms that called something in the neighborhood of 2 to 2 and a half times revenue, a rule of thumb valuation like $175 million in cash buys you maybe something in the neighborhood of $70 million of revenue, which at a 1% fee, it's about $7 billion of AUM. And it's not a small number that you can shake a stick at but you're already, I think you said, a $25 billion firm. So, it's a little like, "Hey, we raised $175 million worth of capital and it could almost grow us 30% if we deployed all of it immediately."

Jim: A hundred percent. And that's why we really got the minority stake... yeah, it just spread our capital out more, we can also serve them via the platform, and that math was eye-opening to me. I did the exact same math you did and I think it's why you're going to see, in my opinion... and I know David DeVoe and others far smarter than me have said this, you're going to start to see a consolidation of the consolidators, right? And I think if the public markets normalize a little bit and there's not such a huge difference between valuations in the private and public markets, I think you're going to see more companies enter the public markets in these large RIA firms because their access to capital, they continue to do the deals that's much more advantageous as a public company than it is to just keep financing via private equity. And so, it'll be interesting to watch that but you're exactly right, 100 million didn't go as far as it used to, that's for sure.

Michael: Depressing to think about.

Jim: It is, amen.

Michael: So, just for advisors who aren't as familiar in this space, I feel like for most who maybe are starting to get into mergers and acquisitions or trying it or want to explore it, they're typically having conversations with either a local bank or a handful of banks in our space that are financing these things like Live Oak and Oak Street and the rest.

Jim: Yeah.

Michael: So, just help us understand what is a convertible debt arrangement for this $175 million amount. What is that as opposed to bank financing, and why did you pursue that as opposed to bank financing?

Jim: Yeah, we view this last round of capital raising probably to be our last diluted event, right? And so, I don't say we got this right but we saw some clouds forming and we thought kind of Warren Buffett mindset, it was better to have a war chest than not have a war chest, right? And so, I remember at the time doing it, Michael, and our interest rate is somewhere around 8% at the time and people are like, "Oh, my goodness," and now everybody is like, "Man, you have a great rate." So, that did well by us. But for us, we wanted a partner that we could do this deal with that could...if we went through the $150 million, there was more there. And so, that's what we did.

And the reality for us was, where we were in our lifecycle, thank goodness, there's going to be plenty of EBITDA, that after that debt converts, we'll have no leverage on our balance sheet and we can go out and continue to grow via debt and not have more dilution. And so, that was our plan. And I think what a lot of your listeners probably want to think about is, "What do I want to do?" If I want to do an acquisition, I don't need private equity money, I can go to a bank or I can go to the firms you mentioned, Live Oak and others, and they're really good and they can help me do that deal and I can add a firm to my practice and I'm going to go and do great. But if I want to be a serial acquirer, I probably am going to want and need more institutional capital to go out and be able to do that.

And I think there is... the vast majority of the deals that are getting done today are getting done by these national firms who are national acquires. But that doesn't mean that there's still not a ton, an absolute ton of local firms that are $1 billion that can and should be doing tuck-ins and acquisitions. And they can finance that through their local bank, or probably more importantly, through some of these niche financers. It's just I think if you want to be a serial acquirer, you need a lender that really knows the space and can set it up with a facility that you can do multiple deals and you can react pretty quickly. And that's where we were at Sanctuary, we needed that partnership to be able to do that.

Michael: Well, I'm struck by just what you're describing in the context of just managing the capital structure of the business. So, if I'm understanding, part of the challenge here is just even for the size that you guys are at, you can only get so much out of the gate as one big old ginormous loan because, at the end of the day, lenders do actually care about things like what is your profits and free cash flow? What is your ability to service this debt? And of course, if you're in fast growth mode, the reality is you may not have a lot of profits and earnings and free cash flow because you're investing so aggressively into the business.

Jim: And that's exactly where we were, Michael. We were in the 4th year of a 4-year plan to build out the platform. And so, while we had positive EBITDA, it wasn't as much as we knew we were going to have a year later, it was a pretty quantum leap for where we would be on a pro forma run rate in '23. And so, that's why this convertible structure made sense for us and we were really comfortable with it and I think it's going to play out really well. But I don't want our listeners to get so bought up in all these fancy terms because the reality is if you know a local firm in your local community and you want to do a tuck-in or you want to buy them, there are so many opportunities that are more simplistic that you can plug into to get those deals done. And I think that's a really good thing because that's an important part of the ecosystem, just like the serial acquirers are. But if you're going to be a serial acquirer, you really need a facility that's got size and sophistication because that's what you're competing with.

Michael: And facility just essentially means like I've got a set of borrowing terms that are set, so when I need to draw more dollars to borrow, I can borrow them, but I don't have to borrow it all up front, I can borrow as I need. But I know what my terms are going to be, so I don't have to get each loan underwritten one at a time. Basically, we should think of it as a glorified really, really, really big line of credit.

Jim: That's exactly right. That's 100% right. And you need that sophistication if you're going to play at the serial acquirer level.

Michael: But then I guess the asterisk that goes with it when you're trying to do this in a fast growth environment is, again, lenders will still only let you borrow so much based on your free cash flow or profitability and whatever their debt service coverage ratios are, right? How much free cash flow do you have relative to your debt payments? So, the tactical path for you was, "We're going to do this as convertible debt, which means we borrow the dollars but it actually converts into equity at some future valuation, and so this is diluted as equity to make us bigger but once we do that, the debt converts into equity." So, "the bad news" at the end of that is like, "I don't own 100% of my firm now, I've gotten an equity partner," but the good news is, "I'm a lot larger, so hopefully..." Whatever, I'm sorry, 80% of the bigger thing is better than 100% with [$]135 million is better than 100% of the thing without it.

And when you get to the other end, where you go from having $175 million of debt to having a whatever percent equity partner and no debt on your balance sheet. And so, now you're a much bigger business with a lot more earnings and free cash flow. So, after that, you can say like, "Okay, now we're just going to go get the giant old fixed loan with the best terms that we can because now I can get a really big loan on my free cash flow because I'm a much bigger business." Whereas if I have to do it more incrementally, I'm going to be so constrained on growth. If I keep too much of my equity, I can't get to the size to get the bigger loans.

Jim: Yeah, you nailed it. I don't think I could have said it any better. The one thing I would just add to that, that's sort of been interesting, right? For the first time in, gosh, what seems like forever, interest rates are rising, right? And so, luckily for us, one of those big decisions we made was to fix our loan, so we have a fixed-rate loan. But for those that don't, that's been a big wildcard because some of the profitability they thought that they were going to have to be able to access their facilities is not there, right? Because they've got additional interest expense and they've got less free cash flow. And so, it's an interesting time right now and I think as rates continue to rise, it'll get more and more interesting. So, there is some things to watch, so to speak, in the serial acquirer right now as people are looking at their facilities and the cost of capital just gets more expensive every day.

How Sanctuary Handles Rapid Growth And Scaling Of Its Platform [1:00:38]

Michael: So, what is it all add up to in terms of just the size of Sanctuary at this point? I think you'd mentioned earlier, assets-wise, you're coming up on $25 billion dollars, but what is this just in terms of advisors, in terms of Sanctuary staff, since, again, we have the Sanctuary P&L and the advisor P&L? What's the advisor count? And what's the overall staff count at this point?

Jim: Yeah, we're right around 300 on the advisor count and that's sort of a little bit... that's registered personnel, right? So, it may be that a team has 4 registered personnel and one of them was a guy with a CSA, but that's registered personnel. And then, we've got about 130-ish, I feel like it grows every day, of employees that support that business and support the other businesses that we have at Sanctuary. And so, all in, it's approaching 450 in our community, mixed between employees and then obviously the advisor folks who are more on the 1099 side.

Michael: So, I'm curious now to hear a little bit more about the journey itself of just the amount of hiring and peopling up it takes to do what you're talking about. I think relative to a lot of...or relative to most advisory firms, so 130 support staff layer behind the scenes supporting the advisors is a lot of people. But then when you get down to you launched in 2018, so you're just coming up on a 5-year anniversary. And so, hiring 130 people in 5 years, which in practice is probably more like 175 to 200, just normal turnover that comes along the way, 200-ish people that have to get hired in the span of 4 or 5 years, you're basically talking about a new team member every week for 5 years.

Like every single week, a new person comes in, which also means when you grow that fast, at no point will the average employee have been there for more than 18 months. Not even because you have a turnover problem, it's like if the business is doubling that quickly, you have to add so many people that you add more than 100% of your headcount every 18 to 24 months. So, you never get to an average tenure of more than 18 months just because of the hiring pace and the doubling pace. So, I guess I'm just trying to understand or visualize, or if you can share more just what does that look like in practice when that many people have to be hired in the organization that has to gear up that quickly?

Jim: Yeah, look, when you say it that way, I'm like, "How do we do it?"

Michael: What were you thinking, man?

Jim: I know. I should write a book, I think it'd be super interesting. And then I think the other layer on top of that too, Michael, is like when you grow that fast, what got you there won't get you there. That old saying, right? And so, how quickly you're pivoting...not because people are bad, but because now your company is in a different place in the circle of life and they need different people and different skill sets. And as we think about where we are now, we've got to scale the thing, and we've got to continue to scale the thing. And so, that requires a very different skill set than maybe the early years, which was maybe more of a sales organization, right? And so, it's been amazing, it really has. And I think like it's one of those things that if you thought about it, you would never do it, so you just have to keep going.

You just have to put your head down and keep going and really be thoughtful of, "What do we need to deliver a great advisor experience so they can deliver a great client experience?" And what I think I've learned the most is asking myself every quarter and asking my executive leadership team, "What resources do we have that aren't being utilized? Where is there...?" I don't want to call it waste, but where are there investments that aren't returning or we could get a better return somewhere else, right? And that's, I think, probably really important for all of us as entrepreneurs to do that frequently and regularly because you will find, "Yeah, we thought that we needed this but we really hired it for an exception, and we either need to get rid of that exception or serve it in a different way."

Because that's where you sort of mess up is when you grow so fast, that you add things that you really don't need. And so, that's been the biggest lesson learned. But I think the other part is if you get the culture right...and I think we have and we focus on it, and some people are like, "What are you talking about, culture and independence?" But we really do view it as a family and we really are a pretty connected group of people. It's a lot easier to meet those hiring goals because people want to join your organization and they want to be part of something. And so, we've really tried to focus on that and we really have some great leaders here and great leaders have their network of people. And so, it's been a heavy lift but it hasn't been as bad as it sounded when we sort of described what we had to build.

Michael: But to me, there's a real power in truly owning as a business owner that phenomenon of what got you here won't get you there. And some of that is just kind of the business strategy and tactics need to change and sometimes as founders and owners, it means like you have to do a different thing in the business, right? The big one for a lot of advisors is just when you have to be less of an advisor and more of an advisory firm business owner because you start moving away from client roles and more into just management and leadership roles if you're scaling up the organization. But to me, I know, I lived a version of this as well and some of the businesses that we've grown and scaled...to me, one of the hardest parts is that the whole gap of what got you here won't get you there, it happens with your people.

Where you have great, wonderful team members who do all the right things and have great success in the role, and basically, the role outgrows them, right? Like you hired a person who was great at doing a thing but now we need a person who can run a 5-person team who all do that thing and sometimes people who are great at doing a thing are not great at managing people who do that thing. And so, your great leader who builds a department ends out being an incapable leader to lead what the department becomes once they grow it to a certain point. And I find those types of challenges crop up a lot and the faster you grow, the faster they come at you.

Jim: Man, you couldn't have said that any better, Michael. And honestly, I would tell you, that's been the hardest and loneliest thing for me as a leader is knowing you're in a moment and knowing you have somebody that you like that's in a role that's incredibly important and incredibly strategic. But you know they are not the right leader for the next part of the journey and you got to make that change. And I know...I'm thinking about one particular example, but there's a lot of them where the organization is kind of looking at you but you have to have that confidence and you have to do what you think is right. And then later, a lot of times, they'll come back and say, "I didn't really see where you're going with that but that was a good call." Or not a good call, right? But, yeah, that's really hard and I think those that do that well and do that right, I think it's a big part of their success candidly.

Michael: Yeah, I see it very often with advisory firms, ironically, I actually find it's very rarely actually the advisors that's the problem with this, it's almost always the operations side of the business. Nothing negative for the ops folks, I love my good operations team. Your amazing right-hand person who was there with you from the beginning of the business 14 years ago when you struck out on your own was your right-hand person, has been your right-hand person all the way through. And that was great for a point of time, but your right-hand person was originally doing scheduling, emailing, and administrative tasks, and now they're responsible for Orion and Wealthbox and 4 CSMs, 4 client service managers that they're supposed to manage and oversee and you've given them the project to do the migration to a new financial planning software.

And that's not their skill set, you've just outgrown them. And the business ends up being bottlenecked because you really need to create a new layer of systems and process or you need to be able to manage and grow your operations team better, and that wonderful right-hand person who's been there forever was so great when you started the business and just literally can't get you there, can't get you to the next level.

Jim: So true. The other place I see it is I feel like sometimes in the tech and ops world, people are actually afraid of implementing technology because they think it'll put them out of a job. And by not doing it, they put themselves out of a job anyway because eventually, it is what it is, right? And so, that has to play out. And I always ask my team that all the time, it's like, "What can we do to use technology to be more efficient?" And you just find that certain people that they kind of blocked that because they're like, "Oh, well, if I do this, am I going to put myself out of a job?" And those people are the ones that I think are really important that you weed out of the organization because they're sort of putting their needs ahead of the organization's and that'll kill you pretty quickly.

Michael: I'm also just curious, you said both there was things we built that we had to get rid of and prune back and there was also just the whole phenomenon of it doesn't really look exactly today what you thought it was going to be when you were getting started 5 years ago. So, take us back to the original, what was the original...what did the original Sanctuary business plan and service offering look like compared to where it has ended up today?

Jim: Look, I think it was probably my own self-reflection, not thinking big enough. I'd spent most of my career in the Midwest and ran that for Merrill Lynch for many years, and so I sort of envisioned we'd be this great Midwestern firm. And as we started to build what we built, the demand was nationwide and I brought in one of my partners, Vince Fertitta, in Texas and we started to grow there really quickly and now we've had a lot of growth out in California. And so, what I thought was going to be a regional business became a national business and I think that was because the offering that we built was really what a lot of advisors were looking for that were coming out of the wirehouses.

And so, as you think about that, that's a whole different level of how you're going to build a business because if you're going to do it efficiently and profitably, you're going to have to embrace technology, you're going to have...you needed training, you needed support, but you were spread out all over the country versus saying Chicago, Indianapolis, Columbus, Ohio, Cincinnati, Ohio, whatever it may be, right? This Midwestern engine.

And so, we had to pivot to that quickly. Now, listen, that's been the greatest thing that ever happened to us because our pool is more diverse and it's better and we've got talent all over the country, but it wasn't something that I anticipated. And the other thing that I think I didn't anticipate was I thought the hard decision was going to be to pick the best technology. That's not been the case. I think it's pretty easy to find something that's differentiating and really good technology, but does it integrate well with the rest of your platform?

And so, we've certainly had some starts and stops over the years where we've chosen a piece of technology that we were enamored by that didn't fit best of our platform, either it'd be a data or whatever other reasons that it might not fit. And so, all of a sudden, you spend 6 months on something and you're like, "That was a giant waste of time, it's not really the right fit for what we do." And so, those are some, I think, the lessons learned and some of the differentiations that I didn't really have enough respect for. I knew we had the relationships and I knew...and so as I thought about my team when I left Merrill Lynch and I started Sanctuary, everybody that I hired, Michael, came from a wirehouse because that's who I knew and trusted, right?

But probably a year to 18 months into this, I started to quickly realize what a mistake that was. And it's not that those wirehouse people weren't really talented, but I needed people that had thrived and really knew the independent space and knew what independent advisors were looking for and knew what the possibilities independent advisors could deliver. And so, sort of that aha moment for me of having to repurpose my team and change the team. And so, we really had a diverse people that came from a lot of different backgrounds that could really add value to the client because the wirehouse team could get the people that say, "Yeah, I want to leave Merrill Lynch, Morgan Stanley, wherever it was, and come to Sanctuary."

But about 6 months in when their transitions were over, those advisors were looking for somebody that had lived the independent life that could make them sort of bring the platform to life and deliver and improve client experience and all the things that I think independence brings and why I think it's the best platform. They needed somebody that can help them do that. And so, we sort of had to recalibrate the team and rebuild it so that we deliver that and I just didn't see that coming. Maybe I should have but I didn't. But luckily, we've done that now and we've got a really good team of people like Bob Walter and others that had a long career in independence and they know exactly what it looks like. And more importantly, they know what you don't want to do so that you don't get the thing off the tracks.

Michael: So then, how do you find the people?

Jim: I really focus on building my network and building relationships, and then what I've learned to do over the last 2 years is just say... I was looking for a COO. And so, one of our marketing partners is a company called FiComm. They're great people. And I said, "Hey, guys, I'm looking for a world-class COO to come in and help us really take the platform to the next level." And it turns out that they had a relationship from somebody that some of them used to work with at United Capital and they made the introduction and then that person has their own network of people, right? And so, I feel like if you can hire the right leader, it's easier to scale up your hiring much faster because they bring with them a reputation and a network that people want to join and want to enjoy.

And so, that's a good example of sort of how we found them. What I haven't used as well is headhunters. That hasn't worked for me as well. I feel like you're just... and this is probably overgeneralizing it and I hope no-one takes it the wrong way. But sometimes in that process, somebody's running from something, not to something, and we're really hopeful with the Sanctuary culture that we're bringing in teammates that are running to something. And so, that's what we try to do is just use our network and get people that are excited about what we're building and they want to make it better.

Michael: So, I hear you on the networking end but most of us, I think, particularly in advisory firms like founder or owner or leadership position, the calendar is really full. Most advisors I know, as the business is growing, they spend less time networking than they used to because life just gets really busy and teams get busy. And the faster you're growing, the more crazy that tends to be coming at you. So, I guess I'm just curious, literally, how do you do networking as a busy CEO? Just how do you find the time and the space to do it?

Jim: There's 2 things that I am unbelievably disciplined about. Well, it's really 3. I don't miss my kids' events, so that's number 1. And that is number 1, 2, and 3, really. Number 2, I call one of our partners every single day. A lot of times, it's on my way to the office or from the office, but I do that every single day. And then number 3, once a week, I reach out to somebody that I've read about or want to get to know and have a conversation. And a lot of times, it's just like, "Hey, Michael, my name is Jim Dickson, I'm the CEO of Sanctuary. I keep reading about you doing these things, can we spend 10 minutes getting to know each other?" And that has paid off dividends to me like no others. I just feel like I've built such a broad network of problem solvers.

And a lot of times, I'll do some homework and say, "Hey, you know the same person I know," or what-have-you. It's a small enough world, you can do that, particularly with LinkedIn. But I think the thing that I would just share with our listeners today is that the magic sauce is the discipline of doing it, right? And my relationships with our partners are unbelievable because I'm just calling them to say, "Hey, man, how are you doing? Do you need anything? Everything going okay?" And I'm calling other people just saying, "Listen, I'm so impressed with you, I'd like to learn more." And people don't do that very much, and so there's not much competition. So many people that are part of the Sanctuary community now started with some of those conversations. So, I don't know if it's a perfect answer but it's what I do and it works really well for me.

Michael: So, I'm intrigued, so how long are the partner calls? How long are these...?

Jim: It's so funny. A lot of times, they are 15 or 20 minutes, "How are you doing?" A lot of times, it's probably like you with clients. In other words, it's more about how your kids are and your family and other things. And then other times when you call them... because I'm really not calling with an agenda, I'm just calling to see how they are and how I can help. But then other times, like I made one the other day and my wife was like, "What are you doing?" She's texting me while I'm driving, which I probably shouldn't say that on the podcast. But she's like, "What are you doing?" Because I'm just driving around because what I thought was going to be a 15-minute call turned into a 45-minute call because we're talking about a new opportunity...

Michael: She's looking like, "You were supposed to be home in 20 minutes, that was 20 minutes ago. So, I've looked at you online by locating your phone and you're doing loops in the neighborhoods."

Jim: You nailed it. Yeah, that's exactly what happened. And so, you never know, but I always just try to not rush them, right? That's the one thing I try not to do. And if they've got something I can help with and, look, if it's going to be 2 hours, I'd say, "Listen, let's get something on the call tomorrow, we can dig deeper, I'll bring in other teammates to help." But that's just something I've done for a lot of years and it works for me. And I feel like it just breaks down barriers and just makes you more accessible, but it also connects me closer to the business, which is really important. I think sometimes as a CEO or founder, when you launch your business or when you start it, you're really close to it. And then every time it gets bigger and bigger and bigger, you get further and further away from the client and the advisor and I think you get really disconnected. And so, this is my way of trying to stay close to it. It's not perfect, but I do feel like I get news pretty quickly when things aren't working like they should be, which allows us to close it.

Michael: Your team rolls out a new offering or a new service, if that didn't go well for some reason, one of your calls in the next week or 2... or more than one of your calls the next week or 2 is going to be like, "Jim, love what you guys do, but, oh, my gosh, that roll-out, I got some words for you." And then you take that and bring it back to the team like, "So, here's what I'm hearing."

Jim: Yeah, I don't think my team always loves that I do these calls but I do think it makes the company better, right? Because if I hear things 3 or 4 times over a 2-week period, I'm like, "Guys, I think we got a theme here that we got to deal with and make better." And they appreciate that but I think they're always like, "Oh, boy, here's Jim and his calls again," right? But it's just something that I do habitually that works really well. Even if I'm traveling, I can always pick up the phone and call somebody. And like I said, most of the time, it's 15 or 20 minutes and we're talking about our lives. But when there is an issue that I can help with or we can help with, it just sort of brings it to the table easier and quickly and I think, more importantly, they know that we care, right? Which is a really big deal that if people just know you care, you're probably 80% ahead of most of your competition.

Michael: Right. And then, I guess the networking calls...so it sounds like those may even be shorter, that could just be setting up like, "Hey, just 10 minutes," it would just... "Hey, heard about you, love what you're doing, here's a little of what I'm doing, can we just spend 10 minutes connecting and just getting to know each other a tiny bit?"

Jim: Yeah, that's exactly right. And it's funny because a lot of times, they're 10-15 minutes, but a lot of times you connect and then you schedule something for an hour afterwards. And a lot of times, you're not doing business together, right? And so, those are kind of weird because it just depends and you don't know until you actually have a conversation. But the good ones, the ones that are exciting are just like when you connect with somebody and they're like, "Yeah, this is part of my tribe," right? "This man or woman understands what I'm trying to do and I think they can add value," and then we'll say, "All right, how's your calendar look? Let's get something next Tuesday, let's pick an hour and unpack this and see if we can help each other." Those are my favorites. Those are really fun. And there's some where the guy is like, "Well, why are you calling me?" And you're like, "Okay, good luck to you, got to go," right?

Michael: Yeah, and you're like, "Okay, yeah, if you're not into it, that's cool." So, are you cold-calling them or is this you look them up and send an email like, "Hey, can we get 10 minutes on the calendar to do...?"

Jim: I'll do both. It just depends. I love that when I was an advisor many moons ago, and so I still do it. And I think as I've gotten a bigger Rolodex,  when I see somebody, I can sort of see who their tribe is, and so then I'll try to look through my tribe and say, "Okay, who do I know that maybe could make this introduction?" Or I'll ping somebody, I usually text them and say, "Hey, can I use your name? I'm going to reach out to this person, can I use your name?" And you'd be shocked how many times they'll be like, "Oh, my gosh, this is a great friend of mine, I'll tell him you're going to call." Right? And it's sort of that asking for advice, I think smart marketing is what I always call it and that's the way I do that. But it's not hard and it's something I would highly recommend to people if they want to build their network is just do that.

The Surprises Jim Encountered On His Journey [1:23:15]

Michael: So, as you just look back on this journey, what surprised you the most about building an advisor platform? Building this business?

Jim: I think what has surprised me the most is the demand for independence. It is off the charts and I think that that is awesome. But I think what's...if that's 1A, my 1B on the surprise list would be just how hard it is to build a fully functional world-class platform. It's just hard and it takes a lot of different skill sets, it takes a lot of capital, it takes a lot of people. And so, I think that when you put those 2 things together, it's why the platform business has grown fast as it is. Because if I can get the benefits of independence, the autonomy, the freedom, the flexibility, the tax benefits, the economic benefits, but I can have a partner that can help me build it and deliver it for my clients... not for everybody, but for a lot of people, that sort of hits the wish list button. And so, I think that sort of led us to where we are and both were sort of surprises. I thought we would build this Midwestern firm and we'd have a group of 40 or 50 advisors that want to be a part of it. And I think the demand for that is much bigger and much larger and I'm very glad that that's a surprise, but that would probably be number 1.

Michael: So, I guess I'm just curious, you listed a lot of things around a demand for independence of autonomy and freedom and flexibility and some tax benefits. I guess I'm just wondering, what do you think is the primary driver of it and...?

Jim: Control. Mindy Diamond and I talked about this a lot. And by the way, I give Mindy Diamond and Louis Diamond a ton of credit. Early on when I was building this firm, I reached out to them and said, "Hey, am I crazy?" And they were like, "No, we talk to advisors all the time and I don't know if you can do it, but if you can, there will be demand." But I think the word that Mindy and I talk about the most is control. People want to control the client experience, they want to control the investment experience, and more importantly, they want to control their destiny.

And if they're sitting in a wirehouse today, they really can't do that and it's like they're at the peril of this big organization that pushes them forward. And on the other end of that barbell, if they're a small independent standalone RIA that sets up their shingle, they don't really have control of their growth because they don't have a platform that's competitive. And so, when I think about all those different views of control, control is the word that comes to my mind that sort of explains why this crazy movement is happening and happening as fast as it is.

Michael: So, where was, I guess, the surprise part? You lived wirehouse for 20-odd years, you have very much seen the other side. So, what made you misjudge this, that it was a surprise that there was so much demand? What do you see now that you couldn't see from the inside, I guess, that...?

Jim: Right, right. Well, look, I knew there was a lot of frustration and that's why I did it. I knew that there was a real distaste for large bureaucratic bank organizations. I knew that they questioned the leadership at many of those institutions that they'd become... you know? Look, I think if you're going to be successful in this practice, in this industry, there's got to be a three-legged stool. The advisor has to have a leg, the client has to have a leg, and the shareholder has to have a leg. And I think what had happened at those wirehouses were that, candidly, the legs for the advisor and the client had gotten a little wobbly or nonexistent and everything had been placed on the shareholder.

And so, when we built Sanctuary, we wanted it to be a three-legged stool that was sturdy. It was good for the advisors, it was good for the client, and obviously, it was good for our shareholders. And one of the things that I think happened, I don't know if it was a surprise, but you got to have a first mover, right? And I remember the Evans May team here in Indianapolis, great friends of mine, and just a world-class practice. We were about 6 months into Sanctuary's launch and Evans May broke with us and came onto the platform. And Michael, it was like all these eyes opened up, it was like, "Wow, a practice that good, that high quality is doing this." And then the next group of bigger teams looked and the next group of bigger teams looked.

So, it was like somebody had to go first and break the glass. And look, there had been some really big teams do it but they sort of did it alone with their own ADV. And this whole platform concept was like...a lot of people in that wirehouse were like, "I want to be independent, I do want control, but I don't want to do all the stuff." Right? "And I don't know how to do all the stuff." And so, the fact that we could build it and then deliver it and then really good teams started to come on the platform that were world-class financial planners and even better people, it just sort of blossomed, right?

And I didn't necessarily see that to the point now where we're bringing on 20 teams a year and about 10 billion in new AUM. I just didn't see it and I guess if I had to blame myself or anything, it would be not thinking big enough. But that was a surprise that once you got that momentum, that the avalanche of high-quality advisors were just waiting for a path to be built that they could have high confidence in that would deliver the experience that they said they were going to deliver so they didn't put their clients through sort of a rough patch. And once they saw 4, 5, 6, 10 really high-quality teams not only move but have great success and have a great client experience, their confidence to do it was just much higher than if they've never went.

The Low Points Jim Encountered On His Journey [1:29:14]

Michael: So, what was the low point for you on this journey?

Jim: Oh, man, I'll never forget it. We've all got one, right?

Michael: Yeah.

Jim: But one of the things that we realized early on in 2018 was one of the challenging things for us was to bring over teams that use a lot of third-party managers because you had to access the TAMP, which was really expensive, and then their manager cost when they were leaving a wirehouse were really low. And so, it was almost impossible to get that. And so, we attempted to build our own TAMP... not a sponsored TAMP, but our own TAMP with the technology, and that was a disaster. Luckily, no clients were impacted and we aborted the mission before we put anybody in harm's way.

But I'll never forget that night when I spoke to one of my partners and we realized if we didn't pivot left pretty quickly, that there was just...it was an unsustainable risk. And I'll remember that forever as our low point and also a proud point because the team pivoted very quickly and delivered something that's pretty amazing and now we're at a great spot. But I remember that day going, "Is this going to put us out of business?" I know we've all had those moments, but that was mine and one I'll never forget.

Michael: So, I'm just trying to understand, what was the blow-up or blocking point?

Jim: We tried to do it on our own.

Michael: There aren't a lot of firms that have built TAMPs. Like that's out there, that's a model. What was not working here and blowing up in your version of it that you had to hit the abort button?

Jim: Well, I think what was...we were trying to do the technology part of it and we're not a technology company. And so, that was a mistake and the technology wasn't working in volatile markets and that was around the time of COVID and so you've got volatility swings. It's like, listen, if you miss a trade and you don't get the whole trade batch right because of a technology issue, that's a $1 million error and you can't do that, right? And so, quickly, being able to pivot, and I remember Adhesion was our partner that came in and was able to convert us very quickly and at economics that made sense for us kind of saved the day.

That was a really big deal but it was also an inflection point because it made me realize like, "Okay, we're not a technology company, we're a platform and we need to partner with technology companies who are way further along because our advisors expect us to have a polished product and service and solution, and trying to build it on their face isn't going to work." And it was just a big learning. We build it because we thought we could get better economics and pass it along to the adviser to make it work. But the reality was we just weren't ready to do that and there was a better way to do it, which is what we've done now.

Michael: Interesting. I do find there's an interesting tendency and drive with a lot of advisory firms as they get to a certain size and they got a little more free cash flow and want to invest in the business of this idea of, "We can build some of our own tech." We all see the flaws in the platforms that we use and the tech vendors that we use. But then you actually go try to build your own, it's like, "Wow, that is a lot more expensive than I expected for not getting as much out of it as I'd anticipated." Because every dev shop you ask will tell you they can build it fairly quickly and inexpensively, but then you get to execution and the cost overruns. It's like, "Oh, okay."

Jim: Yep. You nailed it.

The Advice Jim Would Give His Former Self [1:32:52]

Michael: So, anything else that, I guess, you wish you'd done differently? Or I suppose at a core level, it's just like what do you know you wish you could go back and tell you from 5 years ago when you were in your garden leave time off and you were thinking about this thing and getting ready to launch?

Jim: I think I would tell myself, like a letter to my future self, that what you say no to will be more important than what you say yes to. And I think when you're trying to launch a firm and you're trying to build it, and even in the early stages when you have new capital partners, there's this pressure to grow, there's this pressure to keep going. And so, you really have to be thoughtful around what you say yes to because if you say yes to too many exceptions, your business becomes a giant exception and a giant one-off and it's not scalable.

And so, I think that's probably been the biggest lesson learned for me is, it's really important that you say no to things that don't fit and you have to trust that the law of abundance is really alive and well and that there's going to be plenty of things that do fit. And so, that's really been, probably for me over the last 6 or 8 months, something that I'm really focused on is we're all competitive, we all want to bring on that next new client or that next new partner firm, and so, yeah, we think we can do that. But if it doesn't fit, just say no and move on. That's probably been number 1 for me.

Michael: So, I guess I'm curious if you can share without any inappropriate details, what were the 2 most regrettable, "I granted that exception and I really shouldn't have," and had to walk it back later? Just where did this hit in practice?

Jim: Yeah, so, "Hey, can you customize this for me?" And you say, "Yes, it's part of the business development process," but then you don't really realize until 6 months later that your operations team is spending 6 hours a week on something that's actually getting incremental revenue or profitability. And then you begin to multiply those little things 4, 5, 6, 7, 8, 9, 10 times, and all of a sudden, you're there. And so, for what we did was now we have a worksheet that when a new team joins us or a new decision is made, we'll sort of go through that process and say yes or no as a group.

So, the operations team, the platform team, the compliance team, they can articulate to the business development team, "Hey, if you say yes to that, here's what it means to us, and we're not willing to do that." Right? So, it's more of a sort of uniform decision, and you sort of... it's easy when you have 10 firms to say, "Yeah, we can do that." But as you have 80 firms, it's not so easy anymore. And as you have 100, it's really not, you know? And so, there's just those little things that weren't bad decisions, but they just add up.

Michael: And so, the restructuring became, "If our business development team wants an exception, they got to basically call a meeting with operations, platform, and compliance and get everybody's input and sign off that we're not going to make something too miserable." Like, you can still get an exception, but you're going to have to make a much better case with the people who have to deal with the consequences of business development's compromises.

Jim: You nailed it. Yeah, that's exactly right.

The Advice Jim Would Give Advisors Considering Building Their Own Advisor Platform [1:36:19]

Michael: So, any other advice you would give to other advisors that maybe have built advisory firms and are thinking about whether they want to be more of a platform offering for other advisors? It's just I see this more and more, firms grow to a certain size or, "I've hired the staff, I've made this infrastructure, I can support the 3 or 5 or 10 advisors that we've got at the firm, we're trying to grow and hire more." But it's like, "Hey, I could work with some firms up the street as their platform provider, I got all the infrastructure and the tech now," sign them up locally or sometimes even broader than locally. I'm wondering, any other advice you would give for advisors that maybe have built a firm and are thinking about moving in more of the platform end of either what to focus on, what to avoid as they’re thinking about this?

Jim: Yeah, I think the advice I would give them, Michael, would be that it takes a tremendous scale. So, it's not something I would advise that you just stick your foot in the water because it doesn't work with 4 or 5. We're truly at 80 really big partner firms and 25 billion, and I feel like we've just hit our point of return where now it's scalable and now it's profitable. And so, I think this thought that, "We can just have 3 or 4 firms that are like us," is probably... you really want to dig deep and make sure that you can do that because it's a lot harder than you think.

Now, that same group, I don't mean to be negative because I think that same group can do a full acquisition and instead of...like put them through an entire process where they look and feel like your firm and it's a merger and you have a great client service model, I think that works. But to me, that's not a platform, that's building a firm. And I think that understanding those differences are really...those differences are really important. And I think for most advisors, that acquisition is going to be a lot better return on your time and your investment than building a platform just because of the amount of scale that it takes.

What Success Means To Jim [1:38:22]

Michael: So, as we wrap up, this is a podcast about success and just one of the themes I've long observed is the word success means very different things to different people. And so, you've built what's certainly an incredibly successful platform as you crossed 25 billion and come up on 100 partner firms. But how do you define success for yourself at this point?

Jim: I define success through my relationships, and we spoke a little bit about that earlier about my phone calls. But what I'm most proud of about what we build in Sanctuary is I really feel like I've got hundreds and hundreds of new friends that I really like and care about. And to me, that's really cool because we all have a limited amount of time on this earth, and so it's really important to me that I enjoy not only what I'm doing, but who I'm doing it with. And the fact that we've been able to build a firm like Sanctuary that has grown like it has with people that I like and trust, to me, that's a success. And so, I'm really proud of that. And if that changed, it'd be really hard for me because I think that our relationships are really who we are and what we have, and people matter. And so, whether you call that the relationship, the culture, or whatever it is, I think I call it the friendships, those are pretty cool.

Michael: Very cool. Very cool. Well, thank you so much, Jim, for joining us on the "Financial Advisor Success Podcast."

Jim: Michael, this is a lot of fun. Thanks for having me.

Michael: Thank you.